You may have been able to guess that the pop-documentary "Waiting For Superman" was largely corporate propaganda by the fact that the film got so much praise and coverage in the mainstream media. While I have not seen the full film I did watch coverage of it on MSNBC and the Today show, and have been reading up on it.

It appears that this film puts the "blame" for a supposed decline in American public school education squarely on teachers and traditional public schools. I'll leave a detailed analysis of the film and argument against its thesis to the excellent article The Myth of Charter Schools, but I want to focus in on one issue.

As stated in The Myth of Charter Schools, only roughly 20% of student achievement is a product of teacher influence, and roughly 60% is a product of factors outside the school. This should be pretty easy to understand. If you take a child that is performing well at one school, and you move them to a different school, that child will typically perform well at that school too. Likewise, children that do poor in any given school typically do poor in any other school as well.

The whole point of many of these charter schools, however, at least in initial concept, is precisely to provide environments where traditionally poor performing students can do better. Certainly schools have some impact, and teaching styles, school facilities, the curriculum and the overall learning environment can be designed in ways that improve the participation and performance of students.

But the real questions are: #1 is American primary education performance getting worse or getting better, #2 are traditional American public schools under-performing charter schools and private schools, #3 if they are then why are they, #4 how does American primary school education rank relative to other countries?

First, is American primary education performance getting worse or getting better? Actually it's still getting better. The reality is that while American education has been improving all along, it's just not improving as quickly as some other foreign countries. More Americans graduate from high school today than at any time in America's past, so we are doing a better job at keeping more students in school longer and seeing that they complete primary school education.

Now, the fact that more people stay in school means that by 12th grade, there are more people still in school today who would previously have dropped in years past, and they are still taking standardized tests. Whereas in 1950 less than 50% of the population had a high school education, and most of the people who didn't have one were less intelligent and poorer performers, today almost 90% of the population has a high school education. This means that more poor performers are staying in longer. The inevitable result of this is that there is a larger and larger drag on "average performance". The more people you keep in school, generally the lower you can expect average test scores to be, all else being equal.

Secondly, are traditional American public schools under-performing charter schools and private schools? Yes and no. Certainly there are individual traditional schools that under-perform individual private and charter schools, but the reverse is also true. Taken in aggregate and, importantly, adjusted for economic background, there are no significant differences between traditional public school performance and private and charter school performance.

And here is the key, which gets to question number 3. If traditional public schools do under-perform then why?

The initial concept of charter schools was that charter schools would be set-up to specialize in meeting the needs of special needs children and poor performers in traditional public schools in order to allow traditional public schools to focus on meeting the needs of the majority of students. The view was that something like 80% of the student population could be well served by traditional schooling, while some 20% of the population would benefit from more a specialized environment. Under this scenario, one would expect charter schools to under-perform traditional schools, because the whole point was for them to deal with the poorer performing students.

But then something happened. Then the federal government began allowing private for-profit corporations to take over and manage "charter schools". The goal of these corporations, obviously, is to make a profit, and you increase profits by expanding your market and you expand your market by demonstrating that you "increase performance".

Now obviously you aren't going to have much appeal by being the school for the 20% of the "dumb kids"; in order to expand your market-share you need to go after that 80% of the mainstream student population. So that's what happened, charter schools began "competing against" the traditional schools, instead of being a means of augmenting and assisting traditional schools.

Now in order to really expand you need to show that your system "out performs" the traditional schools, and even better you need legislation that will force traditional schools to be shut down and have the teachers fired in order to acquire those new "customers".

Well, you start by first rigging the game. The first thing you do is you are more selective in your student population, because after all average test scores are largely a product of who you are testing, not how you are teaching. So the charter schools now, instead of taking on the most problematic students, seek to take on the best students and leave the more problematic ones in the traditional schools. And this is all what is happening now with the help of Bush's "No Child Left Behind" and Barack Obama's doubling down on the same program, with Obama's added enforcement measures and program of shutting down of schools that don't show continuous improvement.

Overall, however, what the data shows is that comparable charter schools aren't out performing traditional public schools,

And when we look at the charter schools that do perform well they typically spend many more dollars per student than comparable traditional schools are allotted, and they are more selective either in who they enroll or in who they retain.

The truth is that America's falling position in international academic performance is a symptom of the same root causes that are at the core of nearly every aspect of American decline, growing economic inequality. Studies show that one of the strongest predictors of academic performance is family income, and that things like unemployment of parents, even among students of traditionally high family incomes, can significantly impact performance. When we look at performance on international standardized tests what we find is a direct correlation between income inequality and student performance.

The graph above is based on select test scores. I was having a problem finding data, so I just grabbed the best set I could find. This is then compared to an inverse relativity of the GINI index for those same countries. The test scores go from highest to lowest and GINI index goes from lowest to highest, which is why I had to use an inverse (in the graph a lower GINI value means higher inequality). Relativities were used to make the values comparable.

Certainly we can all agree that improving public education is an important goal, and we should look at things like merit pay as components of doing that, but the reality is that problems in the American public school system are largely symptoms of the dissolution of the American middle class, and of growing economic inequality in America. We can't fix public education in America without addressing the root causes of the problems. The root causes of the problems aren't found within the schools, the root causes of the problems are external to the schools. There are many valid criticisms of American public education, but charter schools do little to address them.

The solution offered by "Waiting for Superman" is essentially turning the American public school system over to publicly funded private for-profit corporations, who in reality have shown no better performance than traditional public schools. The only result of the "charter school" movement will be to further fragment the curriculum, with different schools teaching different views of the world, to allow further infringement of religion into "public" education, and to enrich a minority of people on the public dime. The movement toward charter schools is once again a nexus of the interests of corporate profits and conservatives who see it as a way of introducing their view of the world into the curriculum, allowing a more conservative view of history and science to be taught.

To be sure there are some good charter schools. The whole point of charter schools is that they can all be very different. There are some that are more science based and do have better curricula than traditional public schools, and not all are run by for-profits, but its a mix and that fragmentation is exactly what is used to appeal to different groups to gain initial support.

Like virtually every problem in the American economy and society today, the problems with public education really all come down to growing economic inequality in America, and nothing is going to significantly improve the system until that root cause is addressed and economic inequality is reduced.

Topic: Commentary

After the stock market collapse of 2000 numerous "investment" firms and brokerages, such as Morgan Stanley and Merrill Lynch, were criminally prosecuted on various grounds for investor fraud. The fines in these cases went into the hundreds of millions of dollars, and a portion of those fines were used to pay restitution to defrauded victims.

I would argue that lenders who provided sub-prime loans were effectively engaging in a form of  market manipulation, which, if it had been in relation to securities that are traditionally regulated by the Securities and Exchange Act, would be deemed illegal.

It's very clear that the prices of homes were being driven by credit, i.e. the over expansion of credit led to rapid price inflation, and the issuers of the credit knew this. The credit issuers were involved in manipulating the housing market to their own short-term gain, which again, would be illegal if houses were stock or bonds.

 

 

What needs to be done is there needs to be some way to prosecute these lenders for market manipulation, and either via fines or class action lawsuits or something, these lenders need to be forced to pay back billions of dollars to people who purchased homes between 2003 and 2007. I'm not exactly sure how the payments would be worked out, either there could be a flat percentage based on the state and year the home was purchased in, or something of that nature. Generally in large settlements things aren't too precise, everyone in the class action suit gets a set amount or something of that nature. Some criteria for eligibility would have to be established as well, something like only people who purchased  home and either sold it for a loss or still own it, or had to foreclose after having made X amount of payments, etc. would be eligible.

Here are the facts: Lenders caused the housing crisis. They absolutely did, because without their expansive and clearly fraudulent leading practices prices could not have gone up the way that they did. They caused it, and then they got bailed out, while home buyers largely have not gotten any relief. Now that the banks have been caught fraudulently going through the foreclosure process, while paying out record bonuses and pay raises, the time has come to take serious action.

Many people have been hurt by this and face long-term economic ruin due to this crisis, and even those that don't face ruin, still face less than desirable impacts. What paying out damages to home buyers would do is it would soften the impact of the housing collapse and it would facilitate the return of housing prices to normal levels (they actually still haven't fallen far enough yet). It would let people pay down their homes to get out from being under water and it would allow people to refinance.

This is what's needed to get the housing market, and thus the overall economy, at least marginally back on track. These lenders caused the problem, and yet they still have not been made to pay, in fact quite the opposite, they have been bailed out and propped up and they are going on with business as usual, clearly not having learned their lesson.

The oil company BP ended up putting up $20 billion (actually they have not yet fulfilled that pledge) for restitution for people affected by the Gulf oil spill, and BP is just one company and has fewer assets than the big banks do. It's quite easy to argue that the economic damage caused by BP's Gulf oil spill is far less than the economic damage caused by the housing bubble and the on-going mortgage crisis, and yet the lenders responsible for this catastrophe have not yet been held accountable.

While the Tea Party crowd is busy called the Obama administration "socialist" for maintaining the status quo, the reality is that America's wealthy are turning on the country like a pack of wolves on an old and weak former pack leader.

We still hear arguments from Republicans and other "conservative" ideologues that "private individuals" can better make use of resources than the government, and thus increased taxation, specifically on the wealthy, and increased government efforts to manage or stimulate the economy are all doomed to fail, etc.

Let's be clear about what's really going on right now.

First of all, huge portions of the wealth accumulated by the wealthiest Americans, especially those in the financial sector, over the past 30 years is effectively stolen wealth that has been redistributed from working class Americans and foreign workers to capital owners.

Secondly, the vast majority of this wealth held by the American wealthy is not being used in ways that are beneficial to the American economy at all, and arguably not even to the world economy. Indeed this wealth is being used in ways that sabotage the American economy, and effectively the world economy as well.

Are "private individuals" better at allocating resources than a government in theory? Depends on the government and depends on the current economic conditions. Right now that answer in America would be a resounding no if we had a government with any will to do anything.

We've had basically two years of very low interest rates now, primarily in America, but also in Europe and Japan. And yet, specifically in America these low interest rates have done little to spur improvements in the economy. Now the theory is that if the American central bank provides "cheap money" to people, then they will borrow now and invest it in businesses and hire more people. Of course there is no reason to do this in America because 90% of the population has no excess money to spend on anything more than what they are currently spending on, so what is the deal with these low interest rates?

Well, what's happening is that large financial institutions and super-rich individuals are borrowing lots of money in America and Japan at near zero interest rates, and they are taking that money to developing countries like Brazil, India, China, Vietnam, Indonesia, Russia, and heck even places like Saudi Arabia, etc. and they are investing it there.

The wealthy are essentially banking on the demise of the US and the rise of these other countries, which makes sense to a degree, but in fact what they are doing is they are accelerating the demise of the US and they are creating new bubbles in these other countries. You see, the low interest rate policies of Greenspan and the entire "free market" gang that has ruled American fiscal and monetary policy for the past 30 years is what created the first big set of bubbles in America, the big bubble that Clinton rode and still tries to pretend today wasn't a bubble but rather a product of his good leadership. In fact, Clinton just oversaw the creation of the problem because he himself bought into the whole "free market" nonsense and much deregulation occurred under his watch.

Right now what has happened is that the imbalance of wealth in America and around thew world has become highly toxic to the entire economic system in and of itself. We have a situation where such a huge portion of wealth is owned and controlled by so few people that they don't really know what to do with it, and the result is an ongoing chain-reaction of bubbles, and each time a bubble bursts the reaction is to implement polices that create new bubbles since that's the only way to try and quickly maintain the status quo; the status quo is a rising tide of bubbly foam.

So we have this relative handful of people with trillions of dollars of wealth at their disposal and of course there is simply no reasonable way for so few people to do anything with this wealth, especially when they are driven by an ideology that whatever wealth isn't be used for personal gratification at the moment needs to be employed in some fashion that will generate more wealth for themselves. So this mass of "capital", which is really just money, goes sloshing around from one thing to the next creating bubble after bubble and leaving wreckage in its wake at every turn.

And as we see revenues going down, but incomes for the super-rich going up, what's happening is that they are trying to grab whatever they can right now as fast as they can. Basically the ship is going down, and they are running around grabbing all the silver and fine china and dumping it in their lifeboats, and filling up additional lifeboats with the treasures on the ship, while they kick the coach passengers in the face to keep them away from the lifeboats so they can load them up with more silver and china. And the Tea Party folks are like complete idiots who are helping to keep everyone else away from the lifeboats so the rich folks and can use them all to take their treasure plus every else's with them, and they're too stupid to understand that in the process they are being robbed and dooming themselves to go down with the ship as well.

What we should be talking about right now is how much wealth we are going to confiscate back from the super-rich, 50% of it or 80% of it, but instead the mainstream media and the politicians are propping up a debate about whether increasing taxes on high end incomes by a couple of percent is justifiable and if it will "just hurt the economy" by reducing the amount of income that the wealthy have to "invest in businesses to grow the economy".

The wealthy aren't investing in the American economy now! There are fewer than 500 people in America right now who could, with their combined wealth, pour trillions of dollars of investment into the economy today, right now, and still have a comfortable cushion left over. They aren't doing it. Allowing them to keep a few percent more of their multi-million to billion plus a year incomes will neither encourage nor discourage them from doing anything different.

These people are taking their money and jumping ship; they are sending their money over seas. They aren't helping America, and they aren't really even helping countries over seas. They are creating bubbles, consolidating property ownership, and buying influence among the next round of banana republic dictators. Even if you take folks like Bill Gate who gives a lot to charity, the rest is still invested in the same manner as I'm describing.

Is it better to reduce taxes and government spending so that individuals can keep that wealth and allocate it themselves? Not necessarily, certainly not when wealth is highly concentrated such that the allocation isn't determined by a majority of the population but rather by a small number of super-powerful individuals, and certainly not in this case right now when the wealthy are essentially scuttling the United States for their own gain.

Topic: Semi-random Thoughts

I've come to the conclusion that the most effective way forward for a "leftist" movement in America is via opposition to the wars in Iraq and Afghanistan, and to the military-industrial complex in general.

Multiple reports, including Bob Woodward's new book, Obama's Wars, and the Rolling Stone article , The Runaway General, have recently painted the picture of a White House run by the military.

Statements from top military leaders, including Secretary of Defense Robert Gates and General David Petraeus have indicated that the military has no intentions of leave Afghanistan any time soon, or possibly ever.

Woodward quotes General Petraeus as having said "This is the kind of fight we're in for the rest of our lives and probably our kids' lives", and Roberts Gates as saying "We're not leaving Afghanistan prematurely. In fact, we're not ever leaving at all."

The case can easily be made that military spending is way, way out of control, and the thing is, the majority of Americans realize this. Not only that, but there are even factions within the Tea Party movement, many of the libertarians, who are opposed to America's military spending as well.

Opposition to the war and to the military-industrial complex in general is a movement that can garner a lot of public support from across the political spectrum and across age groups. There are actually a lot of seniors who are dismayed about the state of the American military engagements. And by going after the military budget that's what frees up the spending to secure domestic spending.

I think that this is the issue that the left needs to coalesce around in 2011. Right now its too close to the current elections to do much on the issue, and then we have the holidays, but starting with the new year there needs to be a real vocal movement of opposition to the war in Afghanistan and to the role of military leadership in general.

It is the reality that America's civil government has been taken over by the Pentagon. It is the case that civilian leadership is not longer driving the ship, the military is. This is the case that we need to be making. The military is driving the country to bankruptcy and ruin. The military is now a threat to America's long-term well being.

We have to dramatically scale back military funding and the military mission and put America's military leaders in their place and make it clear that this is a country still run by elected civilian leaders, not unelected military leaders.

I think that this is a major wedge issue where many in Washington, in both parties, are strongly tied to supporting the military, but there is widespread popular opposition across the spectrum. The leadership of the right is firmly tied to supporting and even growing the military-industrial complex, and that why we need a movement defined by opposition to that agenda.

Not only that, but if there is to be a challenger to Obama from the left, this is going to have to be one of their major positions. I'd really like to see a third party candidate to the left of Obama in 2012. I think it actually makes sense, because the Republicans are going to be running Tea Party candidates, so a third party to the right of the Republican won't happen (unless they run on the Tea Party folks between now and then, but I doubt it).

"The only one we're voting for is the one who'll stop the wars!"

See the following related articles/posts:
Tomgram: Engelhardt, Why the Troops Are Coming Home
The Runaway General
Are we ever leaving Afghanistan?
The war in Afghanistan: Year 10
Robert Gates: 'We're Not Ever Leaving' Afghanistan
Hands off the warfare state!
Conservative think tanks oppose Republican efforts to trim defense budget

Topic: Commentary

A recent study shows that Americans vastly underestimate just how bad economic inequality is in America, and that even with this underestimation, Americans overwhelmingly desire less economic inequality, across all party affiliations and even across income levels. In addition, the study notes that while there is widespread agreement that Americans want less inequality, there are major differences in what people believe are the root causes of inequality in America.

For more on this study see: Study: Most Americans want wealth distribution similar to Sweden

For the actual study see: Building a Better America - One Wealth Quintile at a Time

This basically confirms my fundamental beliefs about American conservatives on economic issues, and is the underpinning of much of my writing on economics here on this website.

My view has long been that America is a fundamentally populist country, and that American conservatism is fundamentally populist. I think that if you got rid of all the labels and just asked people directly about how an economy should work, we would find that the vast majority of Americans are actually Marxists, they just don't know it. In fact, some of the people who sound the most like Marxists are social conservatives. Anyone who believes that individuals should be compensated based on how much value they create is essentially a Marxist. I'd be willing to bet that 98% of Americans believe this. Any time I hear a social conservative talking about problems with the economy this is how they frame the discussion. Anyone who believes that income should be based on ownership of capital, where value created by non-capital owners is redistributed to capital owners who amass huge fortunes through this redistribution is a capitalist. I've never met any actual capitalists. I've met a bunch of people who say that capitalism is great, and the best, etc., and when you ask them why the usual answer is "because its a system where an individual's income is based on how hard they work". Bah! The whole basis of support is based on an intentionally promoted misunderstanding.

The explanation for this situation, a situation where Americans are grossly misinformed about economic disparity and where Americans have such a poor understanding of economic fundamentals and ideology, is that this misinformation is an intentional and systemic part of the American education system and American media.

American teaching of economics, even at the university level, is flat wrong. In grade school, American education on economics can be seen as meaningless at best, and outright propaganda at worst. And of course the "mainstream media" (a term now cliche in itself) just flatly and plainly avoids any meaningful economic reporting and analysis and is essentially a propaganda arm for corporate America. I can only assume that economic reporting within mainstream media is undermined a combination of having economic reports and analysis who truly don't know what they are talking about, and by both implicit and explicit censoring of economic information in the media.

For example, something that would be extremely easy to report, which doesn't even require any real understanding of economics, is simply reporting on what the top incomes are in America. I'd wage a bet that 85%+ of the population doesn't know that there is anyone in this country with incomes over a billion dollars a year, almost no one knows this. The Democrats don't even mention it, which shows where their true agenda lies. All of this talk about raising taxes on those with incomes of $200,000 and over just reinforces American misperceptions. We shouldn't even be debating whether or not people with incomes of $200,000 a year are "wealthy" or not, it's a total distraction. Screw the small fish, go straight for talking about the people with incomes of a billion dollars a year!

It's also noteworthy that all of the books written over the past 50 years that are "defenses of capitalism" are completely propaganda and hogwash, which don't even remotely address any of the real criticisms of capitalism. The works by Friedman and Greenspan, etc. are all complete nonsense, which just intentionality avoid even bringing up any of the topics which they know that they can't possibly win on. These books create a straw-man version of capitalist criticism, and then tear down something that was never real. And these are the types of works that dominate American understanding of economics. In Friedman's and Greenspan's works they don't even address the issue of the relationship between capital ownership, wage labor, and income. In fact they never even mount a real defense of "capitalism", what they do is they make a defense of "market economies" and "free-trade" vs the Soviet style command economies. Free-trade and markets have essentially nothing to do with capitalism, it's pure avoidance.

Yes, as a part of the proposition on how to address the problems of capitalism, the creation of command economies was one of the proposed "solutions", but that's not really the issue, that's taking the focus off of capitalism and putting the focus on the shortcomings of other systems. Capitalism is about who owns the right to newly created value, and by what means those rights are legally defined.

The real issue that Karl Marx was addressing wasn't commodity markets, it was labor markets, and specifically labor markets in an industrialized economy where a small number of individuals own most of the capital and most of the people are wage laborers. This issue isn't even a part of the discussion on economics in America.

The popular assumption, upon which everything else is based, is that income in America is inherently fair, and that by definition whatever an individual's income is, that is the true value of their contribution to society. When you start with that assumption, no meaningful discussion of economics can take place, because it is that foundational assumption which is wrong, and until that assumption is corrected nothing else of meaning can be understood.

In my next article I will do my best to as clearly as possible show the differences between a pre-industrial and an industrial economy, to show the evolution of the American economy over the past 300 years, and to explain as clearly as possible what capitalism really means, what the effects of industrialization are on capital ownership, and to plainly address the mechanisms by which industrialized capitalism disenfranchises the majority of the population and creates a system of not only unfair and unearned income distribution, but why an unregulated capitalist system inevitably leads to its own demise.

I remain convinced that if a  fundamental understanding of economics can be properly communicated to American social conservatives, that American conservatives will demand economic change and will stop supporting organizations like the Republican party, which acts against their economic best interests. I do believe that with a better understanding of economics, there would be broad based support for major economic reform in America across the political spectrum, leading to much more equal distributions of capital ownership.

Topic: Announcements

A Progressive Foundation for America's Economic Future

This piece sets out various policy proposals for reshaping the American economy in ways that are progressive supportive of economic growth. The purpose of this piece is to serve as a contrast to current economic policy and set forth new ideas for how to improve the economy, while simultaneously reducing economic disparity.

Topic: Commentary
CNBC recently ran an article about the outlook of some of the nation's wealthiest individuals stating that the outlook of these individuals is pessimistic about the future of the American economy and the Obama administration.

I would really like to know what these billionaires would consider a positive business environment. What exactly could they possibly imagine as a positive pro-business administration at this time?

Let's suppose that in 2012 the most "pro-business" Republican is elected president with a full Republican Congress, what exactly would this look like? What would the pro-business agenda be? Complete de-regulation, default on the Social Security System, elimination of corporate taxes and lowering of individual taxes?

While those might sound like "pro-business" plans, it's also quite obvious that the results of such an agenda would be the impending collapse of the American economy. With a massive deficit the fact is that taxes will have to be raised, at least on those with high incomes, if not across the board, in order to deal with it. Cutting of any significant domestic programs will undermine citizen's economic security and diminish investment in the future.

Do these billionaires acknowledge any complicity in the current state of the American economy? Do they understand their role in creating the current economic environment at all? Do they understand and not care? Are they intentional parasites, knowingly sucking nations dry and discarding them to move on to the next host, or do they somehow think that this is all the fault of "the government" or "the poor"? I really don't know. I do know from reading interviews and books by some billionaires that at least some of them seem to have no fundamental understanding of macro-economics at all. Clearly some of them do, but some of them don't.

Here is the deal, the vast wealth of America's richest individual's has been largely a product of both government and private  borrowing over the past 30 years, and of the system of global trade whereby products are produced by vastly underpaid workers in developing countries and sold in developed nations where commodity prices are higher. But that can only work so long as there is massive borrowing.

Basically what happened was that during the 1940-1970s America built up massive savings, capital reserves, and "credit worthiness", and all of that reserve and credit was then used to buy massive amounts of commodities, which we weren't creating. We consumed much more than we produced, because there was no way to get Americans to build all of that stuff for as little as workers in China, etc. were willing to build it for. Americans aren't going to work 12 hour shifts at 90 cents an hour to churn out iPhones, but the Chinese will, but of course if you work 12 hour shifts at 90 cents an hour you can't afford to buy iPhones at the prices that make them highly profitable. In fact there is no way to make the system work without massive borrowing by one group to buy at much higher prices than the group producing them is paid.

The economy is a shell game, it always was a shell game, and these billionaires who are complaining about the economic conditions are the ones who created the shell game and benefited from it. Now they are upset because all the shells have been overturned and the is no more shuffling to be done.

They should be glad they were able to rip the world off while they did and so far have gotten away with it, but instead they seem to be lamenting the fact that the charade can't go on any longer. My only question is, aside from guys like George Soros, how many of these other super-rich really even understand the situation?

The reality is that there is going to be a long term period of very low profits, even under the most favorable conditions to billionaires, because the developed nations are over borrowed and will take generations to pay down those debts, and developing nations will have to go through a period of rising wages before they can become "consumers". What is likely to happen over the next 50 years, under the best case scenario, is an equalization of living standards and incomes between developing and developed nations, and as that happens, the mechanism used by the wealthy to reap undeserved profits will be eliminated. The primary profit machine of the past 30 years has been producing for cheap and selling high, and under every imaginable scenario this condition is on its way out. Either wages and living standards will rise in developing nations eliminating the ability to produce cheaper there, or prices and living standards will fall in developed nations (deflation) eliminating the ability to sell high there, or some combination of both.

There just is no scenario where these parasites will be able to continue their ways, but the fact is the problems are all structural and systematic, and they are the ones who created them.

Phase I was the building up of the massive wealth imbalance between developed and developing nations. Phase II was exploiting that imbalance while it lasted. Phase III will be trying to "hold on to what you've got". That's what's coming next and I doubt it will be pretty.

Topic: Commentary
Seeing as how it's Labor Day in the most anti-labor "developed" nation in the world, this topic seemed kind of fitting.

Someone e-mailed me a week or so ago talking about his family members' political views and asked me if I thought it was worth trying to even have a discussion with them. Part of my reply contained my view on what I think are basically three different kinds of "free-market" advocates. I presented this same case in a thread on minimum wages on the ultra-libertarian Mises.org website (under the name Jeff), and it basically goes like this:

There are three kinds of "free-market" advocates:

1. Those who acknowledge that in a “free market” system, ownership of capital will become highly concentrated in the hands of a few, who will then by virtue of their concentration of capital, actuality come to control the market and also of course the government and everything else, i.e. that "free-markets" are only fleeting under natural conditions and that it is in fact capitalism that leads to the destruction of free markets and small businesses, etc. These "free-marketers" know all of this and support this because they believe in a system where the few rule the many and they openly acknowledge this and their disdain for their fellow man. They believe that life in inherently unfair and that its fine if a few super rich people unfairly dominate the rest.
2. Those who think that "free-market capitalism" without "government interference" will give rise to a society in which every individual is an empowered capital owner and exploitation and poverty will go away for all those who are simply not to lazy to work. These people are basically delusional fools who have no idea what they are talking about.
3. Those who actually hold the beliefs of type #1, but who advocate for laissez-faire capitalism using the arguments of type #2. These people make arguments in favor of "free-market capitalism" using euphemisms like "freedom" and "choice" and "liberty" and argue that all of this will bring about improvements for the poor, etc., but all the while they don’t really believe any of this. In reality they actually know that what they are arguing for will lead to greater economic inequality where the few rule the many, but they just pretend otherwise.

I posted this in a thread on minimum wages on the mises.org site, but I think it's very much worth repeating, largely because over the past 50 years in America an entire culture of economics has grown up around these "type 3" libertarians. What is so repulsive about these folks is that they don't even have the courage of their own convictions.

Instead of simply stating that, in this case for example, they are opposed to minimum wages because minimum wages can eat into the profit margins of business owners and share holders, they instead claim that they are against minimum wages because minimum wages hurt the poor.

Instead of simply defending policies designed to help the well-off at the expense of  the poor on the grounds that they will help the well-off, they defend policies designed to help the well-off at the expense of the poor by claiming that the policies are designed to help the poor. This is essentially what "Trickle-Down" economics is all about.

A case in point is one of the linked papers in the minimum wage thread on mises.org. This was a so-called study done by the Employment Policies Institute. The EPI is a right-wing think tank, funded by the tobacco, restaurant, hotel, alcoholic beverages industries.

They published a paper in 2001 called Does the Minimum Wage Reduce Poverty?

They answer they provide, of course, is no.

One interesting passage within the paper struck me, because it is so fundamental to the issue of how wages are understood, and to the assumptions underlying the "study".

"Minimum wage laws, if meaningful, require employers to pay some workers more than they would have earned in an unhampered market economy. For example, whereas the federal minimum wage at this writing is $5.15 per hour, in the absence of this minimum some employers might pay their workers $4.50 per hour. Economic theory suggests that in competitive markets, workers will be paid their marginal revenue product—the amount of revenue that the worker contributes to the firm. That is a wage consistent with the profit-maximizing behavior of employers and the utility-maximizing behavior of employees.

Thus, if a firm in an unregulated market economy is paying its workers $4.50 an hour, it is probable that the marginal contribution of the worker to the firm is about $4.50 in revenue per hour. If, in fact, it were higher, say $5.00, it would be profitable for another firm to offer the worker in question a higher wage than the existing $4.50. If, however, the government requires the firm to pay a wage of $5.15 per hour, it might discharge the worker in question (or allow its labor force to decline by attrition until the point that the marginal product of workers equals or exceeds the minimum wage of $5.15). Thus, economic theory predicts that minimum wages cause some unemployment."

This is, in fact, all wrong.

As Adam Smith wrote in Wealth of Nation:

"Though the manufacturer [worker] has his wages advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed."

The very idea that an employee being paid $4.50 an hour is contributing exactly $4.50 worth of value an hour to his employer is not just total nonsense, it's not even within the realm of possibility.

Even if we exclude the additional costs of employing a worker, implying that the worker has to create more value than just what he/she is paid in order to cover not only his compensation, but also those additional costs, no employer would employ anyone if that worker were not creating more value than what they cost, in total, to employ.

If a worker is paid $4.50 an hour, then we also have to consider the additional Social Security contributions of the employer, the employer's compensation insurance to cover the employee, the unemployment insurance paid on behalf of the employee, the cost of the capital used by the employee, the costs of training the employee, the cost to supervise the employee, the cost of administration to process the employee's records and pay, etc., etc.

So, a worker being paid $4.50 is actually cost the employer probably more like $8.00 an hour to employ. So, we know that the value of the employee's labor must actually be at least $8.00 for is to be worth it to the employer to hire and retain him or her.

But, if the value of the contribution of the employee is only $8.00, then it still wouldn't be worth employing them at all either, because at a cost of $8, there would be no benefit to the employer from employing the employee. So, in reality we know that the value created by the employee has to be more than $8.

There is, or should be, some profit margin generated by every employee. If an employee is not creating as much or more value than they are being paid, then there is no reason to retain them at all (Note that over paid emplyees are still retained all the time for various reasons). And it is this profit margin that is in question. What minimum wages do, potentially, is that they can reduce the profit margins on low wage labor.

What minimum wages were designed to address were the scenarios where people were being paid $2.00 an hour to work at companies that were generating massive profits with highly paid executives. Clearly, those profits and executive pay were being generated by paying employees significantly less than the value of their labor.

Ahh... but now the "market economist" replies that in a market for labor, if the value created by those workers was actually so much higher, then those workers would have been able to find another employer who would have paid them more and accepted a slightly smaller profit margin on their labor.

But, basic economic theory also tells us why this doesn't hold out in the real world. There are, in fact, many, many reasons, such as:

• Employer collusion. In situations where industries are dominated by a few large players, for example a few major clothing or shoe manufacturers, it can be more beneficial for employers to not bid competitively on workers in order to keep wages down for all of them. This can occur either explicitly through intentional planning or indirectly via the shared understanding of the market by the employers, without employers needed to communicate their intentions to one another.
• Industry standard profit margins. Employers may not be willing toaccept lower profit margins than their peers, even if the profit margins in the indutry are high or have room to be reduced.
• Due to geography the employment market can be very limited, creating few or no alternatives for employment, in effect, there is no labor market at all under these conditions.
• Discrimination. Employers may all simply not agree to pay certain types of people (historically women, blacks, and Latinos in America) as much money for doing the same amount of work based on irrational biases and perceptions.
• More fundamentally, labor markets aren't dominated by the value produced by the workers, but rather by the lowest compensation other comparable workers are willing to take for doing the work. This is what leads to the "race to the bottom", with minimum wages meant to be a final stop gap in that race to the bottom. The value of what is produced by the worker isn't determined by the labor market, it is determined by the commodity market where the products of the worker's labor are sold. Almost always, the worker has no real understand of the relationships between their own labor contributions and the commodity market, and neither do the consumers. This relationship is typically held in a "black box" by the employers. So in this case, market is not reflective of real value due to asymmetric information, where employers hold all or most of the cards.

As long as the minimum wage is less than the profit margin on labor, then the effect of the minimum wage is simply to reduce the profit margin on the labor, not to make the labor completely unprofitable. In order for a minimum wage to lead to unemployment, an employer has to have a more profitable means of investment.

This is really only ever the case if #1 its possible to outsource the work to an even cheaper geographic region that doesn't have the same labor costs #2 it's possible to automate the work more cheaply than it is to pay the higher wages, or #3 if the profit margin is overtaken, and the good or service can no longer be sold profitably at costs that cover the cost of labor plus a profit margin, which typically means that the good or service isn't in high demand in the first place.

As much as people may think that the issue of minimum wages may be heavily effected by conditions #1 and #2, in fact they are not, because work that is off-shored or automated is not typically minimum wage work. This should be pretty obvious, since the return on investment from automating tasks for what is already the cheapest form of labor is not nearly as high as automating the tasks of more highly paid laborers.

In fact, the effect of automation and off-shoring is typically not the elimination of minimum wage positions, leading to fewer jobs for the poor, but rather it is the elimination of medium and high wage positions, leading to the creation of more low-wage positions in the geographic regions where jobs are automated or off-shored from.

This is quite clear with automation. What automation and industrialization did was it replaced the positions of highly paid artisans with low-wage assembly-line positions. The same goes with off-shoring. The positions in America eliminated by off-shoring were not minimum wage positions, they were medium wage in the manufacturing industry. These are positions that typically paid between $8 and $25 an hour.

So, the argument that minimum wages lead to increased unemployment for the poor is also not correct on those grounds either.

The reality is that minimum wages do lead to reduced poverty, as is very clear when looking at the data in America from 1940-1960, in which minimum wages increased rapidly, followed with sharp reductions in poverty.

Not only that, but the paper published EPI is especially ironic, since EPI is funded largely by hospitality industries, which can't reasonably be off-shored or automated away, which in reality is the reason that those industries are fighting the minimum wage. They are fighting the minimum wage, not because they are concerned for the poor, believing that minimum wages increase or do nothing to reduce poverty, as they claim, but rather because they are concerned for the profit margins of the business owners and minimum wages do have the potential to negatively impact, in a direct way, the the profit margins of employers. Although, in an indirect way, by ensuring that the lowest paid people have some bare minimum of compensation, minimum wages actually boost profit margins across the whole economic system by helping to reduce poverty.

So once again we return to the fact that there are three types of "free-market" advocates / libertarians, honest elitists, honest (though misguided) populists, and dishonest elitists posing as populists. The sad story of American politics and economic discourse is the story of a culture dominated by the later.

Topic: Announcements

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Topic: Commentary

I've gone from being an Obama supporter to now firmly believing that every progressive should be in firm opposition to Barack Obama, and that there needs to be political opposition to the Obama agenda and the Democratic Congress by progressives which is as strong as that of the so-called Tea Partiers.

The sad ting is, that we once again find ourselves in a situation where the only few high profile people providing any meaningful analysis of the problems faced by this country are actually conservatives, because there aren't any high profile elected Democrats or Democratic pundits with either enough spine or intellect to make the case against the Republican policies and "free market" ideologies that are destroying the nation's economy.

Instead its left up to people like David Stockman, former  Reagan budget director, to make the case. I won't go into too much detail about Stockman's article in the New York Times, nor do I agree with everything that he said, but the point is that Stockman makes the case that underlying fundamentals of the economy these past 30 years have been driven by Republican policy, and that these underlying fundamentals are not just damaging to the economy, but that they are disastrous and fundamentally destructive in profound ways.

As Stockman notes, "But when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts."

This is exactly right, and it is what I said in How Reagan Sowed the Seeds of America's Demise. The reality is that the economic recovery that occurred late in Reagan's first term was not a product of Reagan's economic policies, it was a product of the Federal Reserve's policies, and also, which Stockman leaves out, the resolution of the oil crisis which is actually what largely allowed the Fed to be able to take the actions it did to bring down inflation. But yet, while the taming of out of control inflation was the real cause of the economic recovery, it was "Raganomics" that got all the credit,  which has since hooked the American right on the idea that the policies of unsustainable tax cuts and giving the farm to the rich actually works.

It never worked. The short-term recovery was a result of getting inflation under control, which was a result of ending the oil crisis, and the longer term "growth" of the 1980s and 1990s was all a debt financed bubble.

But instead of strongly going after these core and fundamental problems and misconceptions, Democrats, led by the Obama White House, have been busy trying to cater to the right and to "honor the Reagan legacy".

Which leads us to Robert Gibbs' now widely parsed comments on the "professional left".

Said Gibbs:

"I hear these people saying he’s like George Bush. Those people ought to be drug tested, I mean, it’s crazy."

"They will be satisfied when we have Canadian healthcare and we’ve eliminated the Pentagon. That’s not reality."

As far as I'm concerned this is the last straw.

Firstly, I've never heard any progressive say that we should eliminate the Pentagon, that's just trying to cast Progressives in an undeserved radical light.

Secondly, as has been noted by many others that have commented on the Gibbs comments, Barack Obama himself, when he was running for president, said that he strongly supported a "public option" as part of his health care reform agenda, and he said it again early in the discussions about reform, but then he just easily backed away from it, even though polls showed that a majority of Americans supported the idea as well, and analysis from every meaningful economist including the CBO, concluded that a strong public option would do more to control costs than a plan without a public option. So, the "public option", which is even weak as health care reform ideas go, was not only popular among the American electorate, it was also objectively judged to be more fiscally sound!

But it was dropped without a fight. Why? Everyone on the "professional left" knows why. Firstly because the insurance industry lobbyists flat out told the president that they wouldn't even come to the table if there was a public option, and secondly because the noisy Tea Baggers were already calling him a "socialist".

What Gibbs is apparently saying is that getting good legislation passed is not reality, which is useless.

What made progressives even more angry is that Obama said right from the beginning that a Single Payer system was off the table and not even up for discussion, and that's what a lot of progressives were actually pushing for.

But by taking a Single Payer system off the table Obama made two major blunders. Firstly, it meant that they weren't interested in considering all options to look at what could be the actual best way to control costs and improve heath care, but even more important from at least a political game playing perspective, it meant that they were already starting from a center-right position.

If they had just at least entertained the notion of a Single Payer system and fought for it a little and made the case for it a little, even if only superficially, then they could have "conceded" on Single Payer and moved to a public option as a more "centrist" option.

But instead they tried to start out by outright rejecting the ideas of the so-called "left" and moving to the right preemptively. We all see where that got them, all it did was redefine what was considered "too far left". And that's the real problem with the Obama White House.

Obama is doing tremendous damage to progressive ideas, even more damage than Bush and Reagan did, because Obama is redefining what it means to be progressive. The health care plan passed by the Obama administration is now the definition of a "far left" health care agenda, when in fact its a damned right-wing agenda. Hell he basically did the Republican's work for them by passing what in reality they would have loved to have been able to pass themselves.

If the Republicans had tried to pass the exact same plan that the Democrats just passed every progressive in America would have railed against it as a right-wing give away to big business, but because the Democrats were selling it lots of Democratic voters got on board, pushing what amounts to a right-wing agenda.

The reality is that some of the health care reform ideas of the "professional left" are in fact more business friendly, would control costs more, and, I believe, would have broader public support. For example, some form of government run national health insurance system, even if it also allowed for private insurance companies, as many of the European do, paid for via a direct tax on income, a direct tax on employers, and on sales taxes of "unhealthy items", like junk food, cigarettes, etc., would actually be a boon to American businesses.

If you look at foreign competitors around the world, virtually all of our top competitors in developed nations have national health care systems with universal coverage. Places like Germany and Japan, which outperform the United Stated on exports, are able to do so in part because health care costs are actually cheaper for the companies there.

In both Germany and Japan, and many European countries, employers pay a tax per employee that goes toward health care, but guess what? That tax is relatively simple, straight forward, consistent, and cheap compared to the overhead of providing health insurance faced by American employers.

It's actually cheaper to just pay a tax than it is to shop for health plans, administer the plans, bargain for rates, and of course, still pay much more for the plans themselves than competitors pay in countries with government run/funded universal health care systems. Not only that, but the citizens then get the benefit of never having to worry about losing their insurance due to changing jobs or losing their job, and since the plans are national, not regional (though one could argue that in Europe the nations are like states) you don't have to get different insurance when you move either (within the same country).

These are the types of benefits that Americans and employers want and need, and yet the Obama administration and people like Robert Gibbs call this all some "far-left fairy tale".

And the even sadder thing is, is that the so-called "professional left" in America is still largely clueless. I still see prominent so-called "liberals", people like Rachel Maddow and writers on Huffinton post, etc. talking about how much money the super-rich "make" or "earn", even while they are decrying the incomes of the super-rich.

They miss the whole point.

A recent example, though perhaps not the best, I noticed was an article by Stephen Gandel of TIME (Time for Super Taxes for the Super Rich?).

Stephen states: "The rich make increasingly more of the nation's income. So shouldn't they pay a larger percentage of the income tax."

No, that's the point, the super rich are not making increasingly more of the nation's income, the super rich are taking more of the nation's income.

That's the fundamental issue that still isn't addressed, even by the vast majority of so-called "progressives", "liberals", and "professional-leftists". They keep saying that the rich need to pay more taxes since they are "making" more money, etc. No, they aren't, that's the point!

Stop saying that the super rich are "making" their money, they aren't, and by making such a claim it necessarily sets up the counter augment that taking "rightfully earned" money from anyone, no matter how rich, is bad. And that's a valid point. But the premise is wrong and the left in America still doesn't get it; certainly not any meaningful Democrats, though I think a few get it, like Kucinich , maybe.

What we need to be talking about is the fact that the vast majority of the income of the super rich is not a product of their work, it is not wealth that they produced, it is in fact income that has already been redistributed from the working class to the super rich. It is unearned income in the first place. Taxing it away from them isn't taking hard earned money from them to give it to an undeserving underclass, its taking unearned money that was never rightfully theirs in the first place back and giving it back to the people who really created it to begin with.

That's the point, that's where the discussion needs to be. As long as people keep incorrectly referring to the incomes of the super rich as "earned" the discussion will never move forward and progress won't be made.

As David Stockman said in his assessment of the economy:

"The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. ... But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives."

Actally they aren't extracting billions, they are extracting trillions.

Can we expect Barack Obama to even approach this issue? Certainly not, but David Stockman, former budget director of Ronald Reagan did...

See also: The Linguistics of Economic Deception